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Qianhai’s offshore yuan loans to surge
Print Edition
Cross-border yuan borrowing in the Qianhai experimental zone is expected to grow tenfold by the end of 2015, said an official with the zone in Shenzhen, citing more yuan inflow from Hong Kong.
The Qianhai experimental zone is a 15-square-kilometer area of reclaimed land in Shenzhen, the country’s first special economic zone, in Guangdong Province. The Qianhai experimental zone was established in 2010 to spearhead China’s financial reforms, particularly the yuan’s full capital account convertibility.
Authorities in Qianhai said more than 10 billion in offshore yuan loans had flowed into the zone in the year after cross-border yuan borrowing was first permitted in the area.
“Ten billion is not much, but it has huge implications for the full convertibility of the Chinese yuan,” said Zhang Bei, director of the Qianhai Shenzhen-Hong Kong modern service industry cooperation zone administration.
Authorities hope to use Qianhai as a test ground to spearhead financial liberalization by tapping the zone’s proximity to Hong Kong, so far the largest offshore yuan center, with over 960 billion yuan (US$158 billion) in its coffers.
The move to create channels for offshore yuan to flow back to the Chinese mainland officially kicked off in December last year, when the State Council, China’s Cabinet, allowed yuan loans raised in nearby Hong Kong to fund projects in Qianhai at a cost negotiated between lenders and borrowers.
The program got off to a strong start, with 15 banks from Hong Kong agreeing to provide 2 billion yuan in funding for 26 projects in Qianhai.
Though few companies have disclosed the cost of their cross-border fundraising, most said the interest rate negotiated between companies in Qianhai and yuan lenders based in Hong Kong is usually 1-3 percentage points below the benchmark lending rate on the Chinese mainland.
However, lending has since progressed slowly, reaching a modest 5.25 billion yuan in May, as Hong Kong lenders remained ambivalent over how the borrowed funds could be used in the Qianhai zone or elsewhere on the mainland.
Such concerns are underscored by Hong Kong authorities’ lobbying efforts to raise channels for the yuan to flow freely in and out of Qianhai through multiple vehicles such as bonds, stocks and private equity.
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